This past Wednesday the House Judiciary Committee’s Subcommittee on Courts, the Internet, and Intellectual Property met to discuss the proposed Performance Rights Act. Like many things related to the record business, it’s a contentious issue. Depending on where you stand, the Performance Rights Act is either: A) long overdue, the artists have been getting screwed for years, or B) another instance of the RIAA (the trade organization that represents the major labels) scrambling to pull in income from anywhere they can, and in this case they are biting the hand that has fed them for years.

There’s a ton of information (and mis-information) out there, and it’s confusing. Here’s a condensed version of what’s going on, as I see it.

Background
Broadcasters in the U.S. have traditionally only paid royalties on the public performance of a composition to the appropriate performance rights organization (ASCAP, BMI, SESAC). This money is then paid to the writers of the compositions. Unlike most other western nations, broadcasters in the U.S. have never compensated the artists themselves for any public performances. The same holds true for bars, restaurants, and retail stores. For the past 80 years, the record industry and the broadcasters have lived in harmony. The record industry worked the broadcasters, songs were played on the radio, records were sold, and everyone made money.

Players
On the side of radio is the NAB (National Association of Broadcasters), represented by spokesperson Dennis Wharton. Mr. Wharton is trying to build momentum for his cause by referring to the group he represents as “America’s hometown broadcasters,” which is not the first phrase that comes to mind when I think of Clear Channel, a massive radio conglomerate and NAB member. Two members of congress, Reps. Gene Green and Mike Conaway (both from Texas, the corporate headquarters of Clear Channel) have also introduced an anti-royalties bill called the Local Radio Freedom Act, which has been gaining support in Congress.

Those in favor of the royalty include the MusicFIRST Coalition, who was represented last week by Frank Sinatra’s daughter and recording artist, Nancy Sinatra. Marybeth Peters, the Register of Copyrights, also supports the bill, as does the RIAA (who incidentally back MusicFIRST). Sound Exchange, who has close ties to the RIAA, apparently will be responsible for collecting these new royalties, similar to their current role in collecting digital performance royalties.

Details
As submitted by Rep. Howard Berman of CA, the Performance Rights Act will:
(1) grant performers of sound recordings equal rights to compensation from terrestrial broadcasters;
(2) establish a flat annual fee in lieu of payment of royalties for individual terrestrial broadcast stations with gross revenues of less than $1.25 million and for non-commercial, public broadcast stations;
(3) grant an exemption from royalty payments for broadcasts of religious services and for incidental uses of musical sound recordings; and
(4) grant terrestrial broadcast stations that make limited feature uses of sound recordings a per program license option.
(5) provides that nothing in this Act shall adversely affect the public performance rights or royalties payable to songwriters or copyright owners of musical works.

Arguments
The artist’s (and the RIAA’s) point of view is simple: the old ways of doing things no longer work in the new music economy. The artists have made significant money for the songwriters (and broadcasters) of radio hits, but have received nothing from the airplay of their music. A performance right in sound recordings has been imposed on digital services since 1995, including the controversial royalty on Internet radio. It is unfair that U.S. terrestrial radio gets a free ride when all the other radio platforms, as well as international broadcasters, are required to pay the artists for public performances.

The NAB contends that terrestrial radio has always been a partner for the artists, responsible for millions of dollars in record sales. Commonwealth Broadcasting President/CEO Steve Newberry, speaking on behalf of the NAB on Wednesday, thinks that “…local radio provides to the recording industry what no other music platform can: Pure music promotion. Radio is free, radio is pervasive, and no one is harming record label sales by stealing music from over-the-air radio.” He went on to mention that if the bill passes “…the value of this extraordinary promotion, and all of the financial benefits that come from it, will be harmed. Ultimately, less music will be played, less exposure will be provided for artists — particularly new artists — and music sales will suffer.” The NAB also believes that the blame for dropping revenues in music is misdirected, and that the real problem for artists is restrictive recording contracts.

My Opinion
The NAB and the RIAA (the jury is still out for me on Sound Exchange, who have a heavy RIAA affiliation) are not organizations that have the artist’s best interest in mind. Their job is to represent the best interest of their member companies. And although the NAB is framing this as a battle between the “local broadcasters” and the RIAA (taking advantage of the RIAA’s terrible PR problem), this issue affects artists at every stage of their career, signed and independent. Although income is falling, the broadcasters are still making money (radio revenues came in at about $20 billion in 2007, according to ICBS Broadcast Holdings President/COO Charles Warfield, who testified on behalf of the NAB) based on the content these artists produce, and to say the artists should not be compensated for this is the embodiment of the old-school record business.

For me, the real question is if terrestrial commercial radio is still effective at selling music. Fewer and fewer people are tuning in to the large commercial stations that make up a large part of the membership of the NAB, and the play lists at commercial radio are so tight that the number of artists that commercial radio “breaks,” in terms of converting radio play to mechanical royalty sales, is miniscule. While I think non-commercial radio (in particular college radio and NPR) and some commercial Triple A stations are good promotional options for independent artists (radio play helps to get folks to shows where they can buy merch, it provides some legitimacy for a press campaign, and also could work to help a licensing pitch, for example), I’m not convinced that radio works to move records anymore at such a significant rate that it pays for itself. Promoting to radio is expensive, even to non-com radio (see my earlier post on this), and of course there is no guarantee you’ll get spins anyway.

Lastly, terrestrial radio is no longer in the position to say that the promotion they wield is far superior to these other non-terrestrial radio outlets that do pay a performance royalty, in particular for developing artists. I think there needs to be parity between all forms of radio: satellite, online, and terrestrial. I’m confident that non-terrestrial radio will continue to gain market share over the coming years, and I think it’s likely that terrestrial radio will continue to lose listeners, too.

My only major concern with the Performance Rights Act (other than reservations about Sound Exchange and possible collection issues) is the effect it might have on the small non-commercial terrestrial stations that work to promote local artists. The bill does stipulate that these smaller stations will pay a smaller annual flat fee of $5,000, but profit margins are so razor-thin at non-commercial radio, that even this could cause a problem.

Occasionally I hear folks complain about the fact that there is no good music out there any more (this myth was recently perpetuated by LA Reid in this, my “quote of the year”). But the fact is, many of the major national and regional outlets that in the past were the gatekeepers of new content (in particular radio, retail & TV) have ether been homogenized in such a way that they are ineffective at presenting new music to consumers, they are now irrelevant as tastemaking outlets, or both. There’s a whole new world of music promotion that is rising up from the ashes of the old guard that is primarily user-generated: thousands of blogs (Brooklyn Vegan and Day Trotter are excellent outlets focused on indie music) and online radio stations (Pandora is leading the pack) are doing a fantastic job at discovering and promoting new music. There are more outlets then ever to hear/promote new music, they might just not be quite as obvious as they were 10 years ago.

All this being said, I do love seeing quality music from real “developing” artists playing real songs on national TV. I got turned onto Feist from the work she has done with Broken Social Scene, an amazing collective out of Toronto. She’s got a new solo record out and a new song, (“1,2,3,4”) that was heavily promoted in the new iPod commercial. Check her out performing on the Today Show yesterday:

In my course (which starts on January 7th!) I have a lesson on radio. We go through the opportunities available to musicians at noncommercial radio (the stations that are not funded by advertising, typically located on the left side of the radio dial), commercial radio (those that are broadcasting for profit), and non-terrestrial radio (online and satellite). It’s likely no surprise to hear that the amount of money and resources it takes to get your music played on commercial radio during peak listening times makes it an unrealistic avenue for almost all independent artists and labels. I would argue that there are plenty of more effective outlets for the $250,000 you’ll need to spend on indie radio promoters, $50,000 on the necessary trade ads, and $50,000 on on-air ads that it takes to get considered for non-specialty show radio play on an active rock station in a major market. And even if you do have the money (and really feel that commercial radio is where you want to spend it) the stations have long lasting relationships with the major label promoters that they do not want to hurt, and it’s unlikely you’ll get much support anyway!

That being said, non-commercial radio (community stations, college stations, NPR stations) and some commercial radio (Triple A and Americana / some specialty shows) do have opportunities for independent musicians. But it’s still expensive – to really make national headway you’re going to need independent promoter help.

Which brings me to my point – not only is online radio inexpensive to target (in some cases as easy as downloading a submission form, as is the case with Pandora), but it brings excitement, variety, and most importantly, NEW MUSIC into a medium that has exposed the public to less and less new music for years (I am speaking primarily of commercial radio). Online radio is a medium that is continuing to gain momentum and listeners, which means, of course, that the labels are looking for their cut of the profits. In March, the United States Copyright Royalty Board announced new royalty rates for webcasts, effective to 2010. The CRB endorsed the proposal of the RIAA-associated Sound Exchange royalty organization, which represents the major and some indie labels. The new rates would force webcasters to pay for each song streamed to each user, and increase over the next few years as follows: (details from Wired magazine)

2007: $.0011 to stream one song to one listener
2008: $.0014
2009: $.0018
2010: $.0019

These rates would put the smaller Webcasters that do not have significant advertising revenue out of business. And last week, Bloomberg announced that Yahoo and AOL may abandon Web radio as well with the raise in rates (“We’re not going to stay in the business if cost is more than we make long term,” Ian Rogers, general manager at Yahoo’s music unit, said in an interview). The rate increase is not a done deal, however. Webcasters have launched an appeal of the rates, which begins in February.

I’m all for musicians being paid fairly and taking advantage of all revenue streams, but from a marketing standpoint, does it really make sense to impose rates on a developing outlet like this that will essentially kill all but the largest players? Check out more opinions here.

There may be more music produced now than ever, but it certainly is not getting any cheaper to promote it to traditional outlets. David from Digital Audio Insider has written a great piece about the realities of servicing your record to press and radio. College radio is relatively untainted by the consolidation and lack of diversity that haunts commercial radio, and can be a good option for independent bands that appeal to the 18-24 demographic. The same can be said for press, who generally review records and concerts based on buzz and quality, rather than ad dollars (unlike commercial radio and most retail visibility).

As David points out in his piece, press and radio do not react well to emails containing links to MP3s to review. They need the proper CD in a package, with a one sheet. The financial realities of this break out like this:

$1.81 per CD package

+

There are about 1000 college stations which are eligible to send their playlists to CMJ (College Music Journal). Say you are in a hip-hop band and want to get added to the Hip-Hop chart on CMJ. 300 stations report to this.

+ 300 CDs

If you are sending CDs to CMJ, then you are likely touring as well. If you are touring, you want to support your dates by getting press visibility in key markets, as well as try for some national hip-hop pubs. Let’s say you do a press mailing to 300 outlets to cover major regional papers and targeted national media.

+ 300 CDs

= $1,086 for mailing costs.

Of course, you are going to want to hire an indie to help you at press and radio. Depending on your goals, how long your campaign is, and who you use, this could cost you anywhere from $1,000-$4,000 for a radio campaign, and between $1000-$5000 a month for three months for publicity coverage.

Based on these numbers, bands are looking at $12,000-$15,000 on the low end to do an effective campaign to press and college radio.